Antitrust Law Daily Wrap Up, ANTITRUST NEWS: FTC staff comments on D.C. Public Service Commission’s dynamic pricing proposal for residential electricity customers, (Jan 17, 2014)

By Linda O’Brien, J.D., LL.M.

The staff of the FTC’s Office of Policy Planning, General Counsel, and Bureau of Economics has filed a reply comment with the District of Columbia Public Service Commission (DC PSC) in response to a request for comments on Potomac Electric Power Company’s (Pepco) proposed dynamic pricing program for residential electricity customers in the form of a “Peak Energy Savings Credit.”

Dynamic pricing can benefit power customers by enabling them to better match their preferences for utility bill savings and increasing power system reliability. Pepco’s proposal would offer cost savings to customers who respond to incentives to reduce electricity consumption during peak demand periods. The incentives would be made possible via use of devices such as “smart” electric meters. The proposed approach would not penalize customers who did not respond to the incentives.

The FTC staff comment encourages the DC PSC to adopt the proposal as “a constructive initial step toward improving the efficiency of the electric system in a way that can benefit many customers but also leave the existing price structure in place for customers who do not (or cannot) respond to the efficiency incentives.” It also recommends that the DC PSC “periodically review the effects of the proposed approach with a focus on the accuracy of the price signals being conveyed, consumer participation in and satisfaction with the program, and methods to enhance consumer participation and satisfaction over time.”

“It is particularly appropriate” in the FTC staff’s view, “to provide incentives (in the form of bill savings) to customers who trim their electricity consumption from the grid when it is stressed by unusually high demand, and who thereby help utilities and grid operators to meet the challenge of continuously balancing supply and demand on the electric system.”

The staff comment concurs with a recommendation by the National Energy Marketers Association (NEMA) that consumer education programs authorized by the DC PSC should be competitively neutral. “Thus,” the comment says, “we urge the DC PSC to guard against authorizing consumer education programs that focus exclusively on the virtues of Pepco’s own dynamic pricing offers and that may provide consumers with incomplete or misleading information about offers from competing marketers.”

The comment also concurs with NEMA’s view that marketers should have sufficient access to data from smart meters to operate their alternative dynamic pricing offers. “Relative to Pepco, marketers should not be competitively handicapped by discriminatory access to the smart meter data needed to operate their alternative dynamic pricing offers,” the comment states. The staff comment also recommends that the DC PSC ensure that appropriate safeguards are in place with respect to the personal information that smart meters generate about customers and ensure that entities that receive such personal information protect it appropriately. In addition, the comment suggests that the DC PSC require Pepco to inform its customers that it is using their data for purposes of dynamic pricing.

The DC PSC should revisit over time whether technology and customer sophistication have increased sufficiently to warrant a dynamic pricing system in which power customers receive price signals that closely resemble actual wholesale prices in real time, the staff comment concluded.

The Commission vote approving the comment was 4-0.

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